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The Irish Revenue Commissioners made the comments in
May 15 guidance in response to a wave of queries from businesses and individuals on how cryptocurrency
transactions are taxed, a spokesman told Bloomberg Tax in a May 18 email.

The tax office “felt that to assist taxpayers be voluntarily compliant it was necessary
to publish guidance to remove any uncertainty that some taxpayers may have had,” he
said.

Ireland is one of many countries worldwide grappling with the tax treatment of digital
currencies. To try and stitch together the existing patchwork of tax policies around
the digital economy and electronic money that goes with it, the Group of 20 are set
to develop a menu of policy options for consideration when they meet in July.

“There is a realisation that while cryptocurrencies may not be for everyone, they
are growing in popularity,” Caroline Devlin, a tax partner at Dublin-based law firm
Arthur Cox, told Bloomberg Tax in a May 18 email.

“The essence of fintech is mobility — technology can bypass borders, so governments
need to be agile to respond to challenges this will bring,” she said, highlighting
that the Irish government “indeed is — considering cryptocurrencies in every sense
— tax, regulatory, securities aspects.”

No Guidance on Initial Coin Offerings

Devlin pointed out the guidance “does not deal with Initial Coin Offerings (ICOs)
and in particular the tax position of the offering company.” ICOs can take many forms
such as utility token payment tokens, “and each will raise their own tax issues,”
she said.

Companies “will therefore still need to undertake a careful tax analysis along with
considering regulatory and securities law aspects,” she said. “There is clear demand
in the market to locate ICO issuing companies in reputable jurisdictions, and as such
we expect the issues will become clearer over time.”

‘Normal Tax Rules’ Apply

Devlin said the guidance was useful as “there does indeed appear to be some lack of
clarity in the area of transactions involving cryptocurrencies.”

By spelling out in its guidance that “there are no special rules for cryptocurrency
transactions,” Devlin said the tax authority “confirmed our view that basic tax rules
apply to transactions involving cryptocurrencies.”

The guidance also upheld the fact that “usual principles would apply” in deciding
“what might be considered a capital or income (trading) type of transaction,” she
said.

In its document, the tax authority said “normal tax rules” that apply to cryptocurrencies
include rules for:

Income tax (IT): the profits and losses of a non-incorporated business on cryptocurrency
transactions must be reflected in their accounts and will be taxable on normal IT
rules.

Corporation tax: profits and losses of a company entering into transactions involving
cryptocurrency would be reflected in accounts and taxable under normal CT rules. The
tax authority said that companies can prepare their accounts in a currency other than
the euro where that other currency is their functional currency. However, cryptocurrencies
are not a functional currency as defined for accounting and tax purposes, so businesses
are not allowed to prepare their accounts using cryptocurrencies.

Capital gains tax, corporation tax on chargeable gains: businesses that incur gains
and losses on cryptocurrencies are chargeable or allowable for CGT if they accrue
to an individual or, for CT on chargeable gains if they accrue to a company.

VAT Exemptions

The tax authority considers bitcoin and similar cryptocurrencies as “negotiable instruments”
for VAT purposes and therefore and exempt from VAT (Paragraph 6(1)(c) of the VAT Consolidation
Act 2010).

Financial services consisting of the exchange of bitcoins for traditional currency
are also exempt from VAT in cases where the company performing the exchange acts as
principal-or the owner of the virtual currency.

Mining Income received from cryptocurrency mining activities will generally be outside
the scope of VAT on the basis that the activity does not constitute an economic activity
for VAT purposes, tax authority said.

VAT, Payroll

Suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrencies
will be taxed for VAT purposes on the euro value of the cryptocurrency at the time
of the supply, the tax authoirty said.

In cases when businesses pay emoluments to an employee in a cryptocurrency, the taxable
value of the emoluments for calculating payroll taxes will be in the euro value of
the cryptocurrency when the payment was made.

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